Anatomy of a Scam

The Obama Administration, helped by generous subsidy programs provided by both democrat and republican Congresses, has been promoting alternative energy since day one. A number of commentators have criticized the government’s alternative energy policy but now a major investor in solar energy has provided a tool that makes it easier to demonstrate clearly solar power for many, perhaps most homeowners, is a scam.

Google is a major investor in Solar City and Sun Power, two firms that manufacture solar systems for homeowners. While Google appears to be placing a big bet on the future of solar and wind thanks to government largesse, it’s latest marketing tool, Project Sunroof, is a two edged sword. It allows homeowners to determine if solar panels make sense for them but also is a tool that can be used expose the solar scam.

Power for the USA a website by Donn Dears has recently published a piece that concluded on the basis of data from the Project Sunroof website that payback periods for a number of cities range from 13 to 27 years. Dear’s points out that, “An acceptable financial payback is usually less than 3 years. Any investment that requires more than 3 years is probably not a good investment. Payback periods of 6 years or more are bad investments.” Why would a homeowner invest in a system that doesn’t make economic sense?

The answer comes from Congress in the form of generous subsidies for purchasers of solar panels—30% of the purchase price.

The alternative energy tax credit is a classic example of stealing from the many to benefit the few who are financial entrepreneurs. These are the solar manufacturers who only survive because of subsidies and the Wall Street magicians who are ingenious in figuring ways to make money.

Here is how taxpayers get fleeced. Solar manufacturers and some Wall Street firms lease the solar systems to homeowners for a price that is slightly less than the cost of energy from the local utility. In exchange, the lease-holder gets the 30% tax credit. The lease holder also makes money by selling excess power back to the utility through a program called net metering.

Wall Street firms, like Goldman Sachs, set up LLCs to own the systems and collect homeowner lease payments. Once the system’s cost is repaid, the lease-holder’s profit skyrockets. As these systems age, they become less reliable and more costly to maintain, so the Wall Street firms bundle them into solar backed securities, which they sell to get them off of their books. The purchasers end up holding a security of questionable value.

The solar industry would not exist, at least at its current scale, if government subsidies did not exist. Solar City in its 2012 SEC filing stated, “Our business currently depends on the availability of rebates, tax credits and other financial incentives … The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”

The reality is that the renewable energy tax credit is just a means to promote crony capitalism where big government collaborates with big companies to provide what government decides is in the nation’s best interest. When the government make billions of dollars available to solve a problem, real or imaginary, there will always be financial entrepreneurs who will design ways to accommodate the government and get rich in the process. History has shown that once subsidies are in place, they are very hard to end. As Ronald Reagan once observed, the closest thing to perpetual life is a government program. History also shows that government has a dismal record with intervention in the market place

Crony capitalism is corrosive. It deters true entrepreneurship. It misallocates capital investments and talent. And, by adding to the national debt, it makes taxpayers less well off.